Innovations: The Neglected 97% – Entrepreneurs Boot Camp

Interview #4

Sometimes the greatest gift a mentor can provide to an entrepreneur is a truly honest assessment of his or her business concept, because as I learned from talking with Rahul Chaturvedi, CEO of Once Lab, an honest assessment can save a lot of precious time; and as Rahul told me, time is the most precious asset he has.

Rahul came to the Boot Camp with a hypothesis that he’d spent a lot of that precious time (and money) on developing. An engineer by trade, Rahul had deeply analyzed the WIFI marketplace and recognized an opportunity – providing data security for people accessing the Internet at local hotspots like a Starbucks or an airport. He and his team built a product that could solve the problem and he was simultaneously assessing how to go to market and how to fund his company. That’s when a friend introduced Rahul to George Kenney and the Entrepreneur’s Boot Camp.

What made you decide to do the Boot Camp?

I worked for a time in the M&A industry, assessing business deals, researching and analyzing prospective investments and acquisitions. But, I’d never seen a deal from the front end – the investment side. I wanted to learn the secrets of how deals were structured, how they got done and why some didn’t. I felt that would really empower me in my own fundraising. George assured me that I’d be immersed in that world for several weeks and emerge with a deep understanding of what investors really want, how to speak their language and how to assess and understand the differences in funding offers from VC’s versus angels.

Did you emerge from the Boot Camp with that knowledge?

I did. But as it turned out that wasn’t the greatest gift of the Boot Camp for me. Understand, that knowledge had value and continues to provide value today. But the greater gift was that going through the process of learning exactly what VC’s and angels wanted, I realized I wasn’t yet ready to raise capital from either.

How did you come to that realization?

We went through a process of analyzing my business hypothesis within a matrix George created that identifies your strengths and weaknesses. We assessed the research I’d done to prove my business case. It was all based on determining whether we’d have the credibility necessary to get a “yes.” It was clear that we had identified a very real problem in the marketplace. It was clear we can a credible solution to that problem. But it also became clear that we didn’t have a business model that identified an obvious customer. In other words, we’d found a way to solve a problem, but not a way to identify who would buy the solution. We had assumptions, but we didn’t have customer proof. The problem we identified was that “nobody gets fired when a data breach happens.” That was quite a realization. Data breaches happen all the time. Heads generally don’t roll. It just happens. So, customers, whether individuals or businesses, didn’t likely have enough of a motivation to buy our product to prevent something that “might” happen “someday” and if it did, wouldn’t be anyone’s fault anyway.

Did anything else from the Boot Camp experience lead to you realize you weren’t ready for funding?

Absolutely. I had multiple opportunities to watch others pitch VC’s and angels and the nuances of how to tailor a pitch for each. Based on what I was observing that the investors wanted to see, I recognized we couldn’t prove some of those things. We weren’t mature enough, hadn’t tested our hypothesis enough to get a good deal. And I wasn’t interested in making a bad deal that would cripple the company from the beginning. Also – and I think this is really important – I learned that certain limitations I had were going to make funding really difficult.

Can you expand on that?

I have a home and a family in San Diego. This is where I live and where I’m staying. Working with George and learning about the investment community here I realized that there simply wasn’t a lot of funding for the type of business I’d created. There was an industry mismatch. San Diego is a great place for certain kinds of businesses to be funded, such as biotech or military industrial or maybe tourism. But, if you’ll forgive the pun, it’s not necessarily a “hotspot” for a hotspot data security company to find investment. Not that I couldn’t ever find funding here, but my company would need to be at a more advanced stage. I was too risky and there simply weren’t enough potential investors here that deeply understood my marketplace or my solution to its’ challenges.

What did you decide to do when you had that realization?

I had a realization. It occurred to me that I, maybe like many other entrepreneurs, was operating within a box that says you HAVE to go to angels and VC’s to fund your company. But there was another way. The Boot Camp really helped me to confirm something I’d first seen from my days in the M&A world: the more you shop yourself and your deal all over the place the more you occur as needy or even desperate and the less likely you are to get a good deal or any funding at all. I learned how to network in a much more powerful way – telling potential investors who I was and what I was doing, but not directly asking them for money or saying that I was trying to gain funding. Even in a big city like San Diego, the investment community is fairly small. Everyone knows everyone and they talk about deals. The last thing you want to be is the deal that has been shopped to everyone and bought by nobody! Instead, you have to learn how to “be” attractive so the funding sources come to you. That puts you in a much more powerful position.

So, what did you do once armed with that realization?

I went out and pounded the pavement, just telling people what we were doing, what we were working on. I wasn’t pitching my deal, I was simply telling people about myself, my team, our vision. That led me to a company that needed the “kind” of solution our team had, even if it wasn’t based on the go-to-market hypothesis I’d developed before I went to Boot Camp. We gained a contract to apply our solution to their problem and that contract enabled me to keep myself and my team funded to keep working on our larger vision.

Is it fair to say that going through the Entrepreneur’s Boot Camp led to the insights that brought you to that creative way to fund your company?

Oh definitely. I’d always believed that revenue from customers was the best way to get a startup into growth. But, going through the intensive process of honing our models and hypotheses, understanding the local investment community and environment and realizing we weren’t really fundable here in San Diego at the stage we were at, all that led me to the conviction that I’d be wasting my precious time pitching angels and VC’s. We still had work to do in order to be attractive to funding sources. I realized that the most efficient path to being attractive was some kind of market proof and I found a way to get paid to obtain that market proof. But we had to be willing to pivot off of our initial hypothesis in order to accomplish that.

And the strategy, the pivot, is working?

Incredibly. We applied our know-how and technology to solve a specific problem for an industry and that led us to recognize an entirely new set of problems that entire industries had and that we could solve. That took some time. But that was the great gift of the Boot Camp. Instead of spending that time in a hopeless pursuit of capital for an untested hypothesis, we were spending that time developing a new hypothesis and getting paid to do it. Today, we’ve identified not just a problem and how to solve it for a large number of industry customers, but a way to deliver that solution in a way that is compelling and cost-saving for those customers.

Was there anything from the Boot Camp experience that impacted you personally?

Before I met George I had spent time going through another entrepreneurial mentoring process. They told me that as an engineer I simply wasn’t qualified to be a CEO. They advised me to find someone else to run the company and they paraded several candidates in front of me. One of these people, they said, could run the company while I developed the technology solution and it would cost me maybe 20% of the equity. That didn’t sound like a good deal to me and the fact was that I did have plenty of business experience. George took a totally different approach. From the outset, he said the notion that I wasn’t qualified to run my own company was nonsense. What I needed to learn was how to “be” a CEO – to embody it — and I learned to do just that while working with George.

Key Takeaway: Time is precious to you, to your team, your family. One way to avoid wasting time in the funding game is to recognize your weaknesses and understand how investors will perceive those weaknesses. In many cases, an honest, experienced mentor can identify those weaknesses far better and faster than you can. Addressing those weaknesses, being willing to explore changes to your hypothesis, or to spend time honing it and testing it, with the advice of an experienced investor, can save you time, frustration and heartache and get you on the right path BEFORE you spend months or years trying to get to “yes” from the investment community.

About Robert Steven Kramarz

Angel investor and venture fund manager; advisor on investor pitching and investor relations, due diligence, impact investment, Reg. A+, Crowdfunding and Revenue Royalties. He’s author of the recent books _Born to Star_ and _The Road Less Traveled – Raising Capital without Debt or Equity_. He’s currently Executive Director of Intelliversity and active team member of Entrepreneur'$ Bootcamp, Pacific Royalties, 22nd Century Ventures and Vantera Partners, and the advisory boards of another six companies. He works tirelessly to increase the amount of private funding available for innovation, science and impact investments.

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